The impotence of price controls: Failed attempts to constrain pharmaceutical expenditures in Greece☆
Introduction
Expenditures on pharmaceuticals are increasing in most developed countries. Greece has been relatively successful in constraining the price of pharmaceuticals, which are among the lowest in the European Union (EU), but not pharmaceuticals expenditures, which, by European standards, are high as a share of national income and total expenditure on health [1]. The rate of increase in pharmaceutical expenditures in Greece over the last two decades has been particularly rapid, more than doubling in real terms, and being surpassed only by that in Ireland within the EU. Most of the cost of prescription drugs is covered by public insurance and so the rate of increase in expenditures is placing an additional burden on already severely strained social insurance funds.
Policy efforts to contain healthcare expenditure in Greece have focused on controlling the price of pharmaceuticals. But the reimbursement system provides little incentives for physicians and patients to be price conscious in their prescription and consumption of medicines [2]. This paper analyses trends in pharmaceutical expenditures in Greece, drawing comparisons with other European countries and examining why expenditures have continued to increase despite the cost-containment measures introduced. It is argued that extensive price controls have not been effective in suppressing rising pharmaceuticals expenditures. Through decomposition of data from the largest social insurance fund (IKA), which covers more than half of the population, the effect on aggregate drug expenditures of the switch to new and more expensive drugs is determined by eliminating the effects of changes in prices and quantities. This reveals that 493% of the rise in real drug expenditures is attributable to the adoption of new and more expensive products. While there are undoubted therapeutic benefits from the adoption of new technologies, these could be realised more cost effectively if there were stronger incentives to promote the prescription and use of generics.
The following section describes features of the Greek pharmaceutical market, health sector and policy reforms that are most relevant to pharmaceutical expenditures. In the third section, the rise in drug expenditures is described and explained through decomposition of the increase into the contribution of changes in prices, in volumes and a product-mix effect of pharmaceuticals prescribed. Drawing on this analysis, policy implications are discussed in the final section.
Section snippets
The pharmaceutical industry and retail market
Greece differs from the majority of EU member states in that, until 1998, it had no proper recognition of intellectual property and thus drug patents. The absence of strong patent protection strengthened the bargaining position of the government relative to foreign research-based companies because any new drug could potentially meet competition, soon after its introduction, from copies produced by non-research companies. However, the domestic pharmaceutical industry did not fully exploit this
Level and trend in pharmaceutical expenditures
According to the latest available OECD data [1], real pharmaceutical expenditure2 in Greece increased more than twofold from €569 million in 1991 to €1865 million in 2006, or an annual average increase in real terms of 8.5% (see Table 1). In each year, the annual rate of growth in expenditure on drugs exceeded that for total health expenditures. The
Discussion
Between 1991 and 2006 real spending on pharmaceuticals by the largest social health insurance fund in Greece (IKA) increased dramatically by 285%, despite a 58% decrease in the relative price of drugs. Our analysis reveals that that a 56% increase in the volume of drugs prescribed contributed to this substantial rise in spending but that the largest part (493%) of the increase is attributable to changes in the composition of drugs prescribed. The dominance of the product-mix effect and the fact
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This research project is co-financed by the EU – European Social Fund (75%) and the Greek Ministry of Development – GSRT (25%).